Implementing Manufacturing and Materials Management: From Empty Plant to Costed Work Order · Module 16 · Cost Planning
Overhead rates
Lesson 167 of 188 · 16 min
Overhead is indirect cost — supervision, facilities, utilities, indirect labour — absorbed onto production so that product cost reflects the full cost of making it. Two rate types. Plant overhead is applied at plant level, based on item or item category. Work center overhead is applied at a work center, based on work center and resource type. Two absorption types. Percentage is a percentage rate applied to a base; fixed is an absorption value per unit. The design question: what basis reflects how overhead is actually incurred? Overhead driven by machine time should absorb on machine hours. Overhead driven by handling should absorb on material value. Absorbing everything on labour hours in a highly automated plant systematically misprices products — and the controller may or may not know that. Raising it is a service to the client. Then build: a plant overhead rate with item category basis and percentage absorption,…
The full lesson is part of the course
The video, the complete written lesson and the module quiz are included in Implementing Manufacturing and Materials Management: From Empty Plant to Costed Work Order, with a certificate on completion and a fourteen-day refund window.